Blocked input tax credit and employee canteen GST treatment clarified for statutory welfare facilities and business promotion goods.

Canteen services provided to employees under a statutory welfare obligation under the Factories Act and applicable factory rules were treated as a mandatory facility attached to employment and therefore outside the GST tax net. However, input tax credit on GST charged by the canteen vendor was held inadmissible because the blocked-credit restriction in Section 17(5) continued to apply, and the 2019 proviso was held not to extend to canteen services. For business promotion items such as sweets, dry fruits, electronic items, and gold and silver coins, credit was also denied because the goods were treated as used for personal consumption or otherwise barred under Section 17(5), which prevails over the general entitlement under Section 16.

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Issues: (i) Whether canteen services provided to employees under a statutory obligation attracted GST and whether the company was entitled to input tax credit on GST charged by the canteen vendor; (ii) Whether input tax credit was admissible on business promotion items such as sweets, dry fruits, electronic items and gold and silver coins.

Issue (i): Whether canteen services provided to employees under a statutory obligation attracted GST and whether the company was entitled to input tax credit on GST charged by the canteen vendor.

Analysis: Canteen services were being provided as a mandatory, no-profit facility under the Factories Act and the applicable factory rules. The supply was treated as a welfare facility attached to employment and, on that footing, was held to be outside the tax net. As to input tax credit, the decision turned on the scope of blocked credit under Section 17(5) of the GST law after the 2019 amendment. The proviso relied on by the appellant was held to apply only to the specific clause to which it was attached and not to canteen services. The inward supply of food and beverages for the canteen therefore remained within the blocked-credit restriction.

Conclusion: Canteen services to employees were held not taxable, but input tax credit on the canteen vendor's GST was held inadmissible.

Issue (ii): Whether input tax credit was admissible on business promotion items such as sweets, dry fruits, electronic items and gold and silver coins.

Analysis: The claimed items were treated as goods distributed for personal consumption or use rather than as eligible inward supplies for credit. Section 17(5)(g) barred credit on goods or services used for personal consumption, and the asserted business-promotion character did not remove the statutory restriction. The general eligibility under Section 16 could not override the specific blocked-credit provision.

Conclusion: Input tax credit on the business promotion items was held inadmissible.

Final Conclusion: The appeal succeeded only to the limited extent that the canteen activity itself was treated as non-taxable, but the denial of input tax credit on canteen services and on business promotion expenses was sustained.

Ratio Decidendi: Specific blocked-credit provisions under Section 17 override the general entitlement to input tax credit under Section 16, and a statutory welfare facility provided under employment law does not become taxable merely because a nominal recovery is made from employees.

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